Reputation has been formed over a period and is

Reputation is an intangible asset and one of the most
important because it can indicate future expectations and previous performance.
Reputation is how the organisation is perceived in the public eye. Anything
left to the public opinion is extremely volatile and hard to control. In line
with Ward Ching’s analysis on reputational risk we remove other layers and
reflect on just reputation alone. Due to reputation being an opinion of the organisation
that has been formed over a period and is based on the continual actions of the
organization. It is different from brand and image which are in line with
reputation but brand/image is the initial perception of a company. A good
reputation shows us that what the shareholders expect match’s how the
organization is behaving and performing.

For damage to occur to the reputation of a
company in today’s globally interconnected world is easy. Therefore, increasing
the importance of understanding and then managing it in business of all
sectors. A good reputation can be more valuable than money as without a good
reputation from your stake holders it can be difficult to generate the money
for a profitable business.

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Ward Ching outlines reputation could be
view from potential threat and potential impact perspective. Potential threats
are split into 4 categories where risk to reputation stemming from employment
activities, product or customer issues, governance or other less easily
classified risks to reputation. Using these categories I am going to outlining
a strategy to manage the potential threats from reputational risk.

Employment activities

Reputation has fundamental value as an intangible asset but
reputation will not have a figure that stakeholders can look for in the
financial statements leaving reputation very susceptible to change. Ward Ching
outlines one threat to reputation as being the threat through employment
activities. Employment activities are basically the concerns surrounding the
organisations employment conditions globally, weather they are treating workers
fair and are meeting their employment rights, also reins in focus on the on the
compensation executive members receive, furthermore it covers the training
regimes weather there are any negligent employees which may have not been
trained properly leading to technological malfunctions causing breach’s through
security or missing equipment.

An example of
where a fault in employment activities has tainted an organisations reputation
is the RBS IT failure, which caused numerous weeks of disruption, customers
could not use online banking facilities to access their accounts (ComputerWeekly.com, 2018), they could
not obtain accurate account balances from ATMs resulting in the inability to make
timely mortgage payments, also they couldn’t access cash in some cases (BBC News, 2018). This will result in
a drop in customer satisfaction due to the negligent employees which allowed
this to happen, consumers want their cash to be in secure hands.

Reputational risk is important to bank’s largely because
stake holders do not have as much information as the runners of the company. A
good reputation is very important for the stakeholders to make choices. It
becomes more important in this period of rapid changes, globalization and
meddlesome media.

Therefore, to manage this risk and not allow this to
happen it can be done through strategic alignment (Proviti, 2013). The implementation on reputational risk in the
strategy settings and business planning, to create plans including how to
minimise the chances of employment failures i.e. make sure training is vigorous
but not to the level where it demotivates and not too easy to pass that makes
employees complacent. Also, create more stringent checks on employees to make
sure performance and skill level is on par to were an incident of negligent
behaviour leading to malfunction of systems is highly unlikely. The businesses leaders
should also effectively communicate the threats associated of reputational risk
to their employees and how the they too can affect the reputation of the
organization. Communication through all levels of the business is key so they
know the damages a taint in the reputation can lead to.

Product or Customer issues

Another possible area for threat is through
product and consumer issues, which could be through a difficulty managing
product quality or service quality through all your chains of the business as
well as the concerns about the chances of failure to protect customer information
as a key request from customers is anonymity and privacy they do not wat their
details to be shared or leaked. This can really degrade an organisations
reputation because of the break of trust, a consumer trusts their details and
money in the case of a bank two of the most arguable valuable things to an
individual. Furthermore, a high-profile incident where a product recall is done
can affect reputation because why would a product be run out globally to find
out there is issues indicating poor planning and management. A good reputation
can help to attract and retain new consumers and can prevent new competitors by
acting as a barrier to market entry. The attitude of the regulating bodies and
media are also influenced by the reputation of the organisation, if it is known
not to be trust worthy a harsher review might be taken.

An example of a
failure in product issues was caused by Santander due to their unlawful
behaviour where they had found a significant risk that the bank was giving
unsuitable advice to consumers and that its approach to assessing people’s
tendency for risk was incorrect. “In one case, an adviser recommended that a
71-year-old customer invest £35,000 in a product with a six-year term” In result
they has been fined £12.4m by the City regulator (Osborne, 2018).

This clearly
would damage the reputation of the bank as consumers want true and tailored
advice on investment they failed to check that these investments being sold met
customer’s individual needs, despite the reason they came there in the first
place. Therefore, reputation is more important than ever before as it is highly
likely these customers will never bank with Santander again.

Therefore, to
manage this risk and not allow this to happen it can be done through Quality
commitment (Proviti, 2013). This where focus on positive interactions with key
stakeholders such as your customers is top priority, these interactions are key
as how you make your stakeholders feel will determine how long they will stay
stake holders to your business. Important to implement techniques which tailor
your products to your stakeholders, since individuals will feel more
appreciated and cared for resulting in a positive experience leading to a good reputation
on how you handle your consumers. Additionally, high quality public reporting
is great strategy to build your reputation as it creates a sense of a connection
with you and your stake holders, the more transparent the business is, the less
hidden it can create a sense of a connection between the organization and the consumers,
that this company isn’t hiding key information from us, it is a trustworthy
establishment.

Governance

Furthermore,
the threat of reputational risk through governance can array due to a conflict
of interests in the cooperate governance, or through the difficulty of keeping
up with the pace of regulatory changes within the industry an organization
operates in, if you are not quick enough to comply with the changes could lead
to bad publicity which raises the question to stakeholders why couldn’t the
company change in time? Leaving doubt in the consumers mind through unanswered questions
can suggest to the stakeholders a poor management damaging the reputation in their
eyes. The threat can also be generated from corporate governance failures in financial
or reporting irregularities.

During the 2008’s
financial crisis RBS was subject to the biggest government bailout during the crisis,
as the state still owns 80%. ‘RBS crushed thousands of businesses during the
financial crisis to increase its own profits (Chapman, 2018). This news
has damaged RBS’s reputation and they have struggled to regain its reputation
since 2008. This inability to honour the regulations put in place tarnished
their reputation the most.

A way to manage
this threat is to prepare for a crisis (Joyce and Joyce, 2018), so then when a
crisis has occurred the organization has a clear strategy outlined with
reputational risk incorporated into it so there is less pressure and strain on
the business. A team needs to be assembled and should regularly meet monthly,
to discuss events that could impact the institutions and should adjust the strategies
in place to deal with reputational issues as well, so in the event of a crisis this
team of individuals can take this plan, tailor it and put it in to action. Then
the organization stays in line with all regulatory frameworks and doesn’t damage
the reputation by straying away from what is legally allowed.

Other

This section
covers other less easily classified risks to reputation which can come through
the increasing scrutiny of business practices from stakeholders and members of
media, media is key in this technologically orientated age we live in if media
publicises a story portraying a negative outlook on the business it can lead to
huge damage to reputation and that is where stakeholders look to gather
information on organisations. Another risk comes through increasing corporate
social responsibility expectations, additionally concerns regarding
discrimination within the work place can leave a negative outlook upon the
organisation, discrimination highly frowned upon in society. If an organisation
is discriminatory it not only will have to deal with legal issues but the reputation
will also suffer.

An example of
other hard to classify incidents that will influence reputation is the chief
executive of Lloyds Banking Group’s personal life scandal. Bad publicity
circled the group caused by allegations of an affair between the chief and
another woman (Farrell, 2018). This damaged reputation as it insinuates the
characteristics of a liar and a cheater at the head of a banking organisation,
this is not something stakeholders such as customers and suppliers want to hear
and it makes them questions what other things have remained un hidden.

A way to manage
the reputational risk is through the Eccel’s 5 step process (Robert G. Eccles 2007).
This outlines a strategy to manage risk. Step one is to assess current reputation,
through measuring the company’s public perception objectively using a wide
range of different individuals and transfer that information into a qualitative
figure. Next step is to evaluate the company’s ability to meet the performance
expectations of the stakeholders, because if actual and expected performance
match it results in a good reputation. Furthermore, company’s need to facilitate
effective investor relations and corporate
communications programs to keep a close relationship with your
stakeholders shows them caring traits. Additionally, Monitor Changing Beliefs
and Expectations through surveying experts and stakeholders and
on a regular basis to reveal to us their beliefs like the first
step but expectations change so it needs to be checked regularly. Finally put
one person to oversee reputational risk and have them channel findings to the management
regularly.

Conclusion

To conclude, I believe
reputational risk for any organisation should be a highly-valued threat to the
company to have a strong reputation is a very important way of sourcing
competitive advantage because in today’s world products and services are
becoming less differentiated therefore it is not difficult to change for a
stakeholder to change to another provider if your reputation in their eyes has
been affected negatively.

Reputational
risk management to minimise the possible threats stemming from employment
activities, product or customer issues, governance or other less easily
classified risks to reputation is key, and should be implemented in the organization
and regularly reviewed. I personally agree with the Eccles 5 steps to managing reputational
risk.

Furthermore,
organisations should take an ethical outlook in operation strategies as ethics
refers to moral rules, what is right and wrong. Ethical values carried by individuals
and organisations differ, and they are changing over time but companies should
line their ethical objectives of the firm with the ethical views of their
stakeholders i.e. creating a sustainable environment, sustainable products and an
ethical work environment without discrimination. An ethical company will receive
better publicity growing its reputation in a positive way.